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When to Make Extra Mortgage Payments…

Many people routinely add $100 or $200 to their mortgage payment each month. It’s a good feeling to know they are closer to paying off their home or apartment. For some of them, however, it may not be the best move, financially speaking.

Those whose mortgage interest is tax-deductible, could make another choice. Their interest payments are actually reduced by the income tax deduction. For them, funding retirement accounts is a better idea, especially if the funding is tax-free and/or tax deferred. (Such as your 401(K), or IRA, or tax deferred insurance vehicles, etc. It’s likely you may be able to get yields that are greater from these alternatives than making extra mortgage payments would offer.

Paying down a mortgage loan IS a good idea if your mortgage interest is not tax deductible.

If you are taking the standard deduction rather than itemizing, you receive no tax break for your mortgage interest. You might also want to make extra principal payments if you have an adjustable-rate mortgage. If the interest rate rises by two points or more, your monthly payments will be much higher. To offset that, you may want to reduce the balance with higher payments.

If you lack the self-discipline required to invest elsewhere, you could also benefit from extra principal payments. It’s easy to procrastinate when you should be investing. But you have to write that mortgage check every month anyway, so you might as well make it a little bigger, and place the difference somewhere that it might be more profitable for your future! Please talk to us about how we can help you “force yourself” to save…so you can be as sure as possible you’ll have the dough you need when you need it!